Kenya loses the grip on business climate reform

Kenya’s standing as East Africa’s most attractive destination to foreign investment has come under serious threat from neighbouring states, who are cashing in on the country’s lengthy licensing procedures and sluggish commercial dispute settlement to sharpen their competitiveness.

A World Bank study, whose results were released on Wednesday, shows that Kenya has entered East African Community’s Common Market as one of the most restrictive economies, eroding its chances of riding on the enlarged market to boost investment inflows.

Though Kenya, the region’s largest economy, has been the more brazen hunter of opportunities in the integration project, it has retained more laws than Uganda, Tanzania Rwanda and Burundi, the bank says, citing the punitive licensing processes and foreign ownership restrictions in key sectors of the economy.

Of the 21 Sub-Saharan African countries covered in the survey, Kenya has been found to restrict foreign ownership in more sectors than most of its rivals.

The limits are mainly in the telecoms, insurance, media, transport and power generation.

The study polled 87 countries based on restriction of foreign equity ownership, the process of starting a foreign business, access to industrial land, and commercial arbitration regimes.

“These barriers to entry present a tricky challenge for Kenya as it seeks to attract foreign investments to build its economy and create jobs,” said Mr Peter Wachira, a senior investment manager at PineBridge Investments. “Every investor is looking for a destination with the least hurdles and costs.”

“FDI is critical for a country’s development, especially in times of economic crisis,” said Janamitra Devan, the Vice President of Financial and Private Sector Development at the World Bank. “It brings new and more committed capital, introduces new technologies and management styles, helps create jobs, and stimulates competition to bring down local prices and improve people’s access to goods and services.”

Despite the image of running a more business-friendly environment, doing business in Kenya is more challenging for foreign investors compared to Rwanda, says the report published early this month.

It, for example, takes 34 days and 12 procedures to establish a green field foreign business in Kenya or for a multinational to establish a subsidiary,” compared to four days and three procedures in Rwanda.

Similar processes take slightly longer in Tanzania and Uganda –– 38 and 39 days –– and the investor going through 14 and 21 procedures in each country respectively.

Kenyan business leaders however say these are not the only obstacles to the country’s attractiveness to foreign business.

“There is need to bring efficiency in key industries and to sort out perennial problems such as electricity and infrastructure,” said Mr Nkoregamba Mwebesa, the CfC Stanbic Financial Services managing director.

Kenya’s comparatively vibrant private sector, advanced infrastructure and skills base has been its main selling point in the global investment market but heavy bureaucratic red tape, high level of corruption and more recently political instability have become its Achilles’ heel.